Posts Tagged "interest"

It’s A New Dawn – Change is in the air

Posted by jefferson on Feb 10, 2012 in Eliminating Debt | 8 comments

It has been three weeks since we began this journey, and we are just getting started. That said, I can already feel our spending habits changing, and it feels great to be on the road to recovery.  We are on pace to cut our grocery spending IN HALF this month, and our utilities, cable, and gas expenses should all be down as well.

With these savings, we are confident that we will be able to make a large payment each month towards our debt, and that we will get to watch the balances begin to quickly drop.   That said, what we really needed to get our progress towards debt freedom going- is a kickstart. Something to truly go along with our “New Dawn” changed lifestyle.  As mentioned previously, my job would not be getting a bonus this year, so the kickstart would have to come from elsewhere.

Luckily, we choose to efile our tax returns and a large tax refund arrived just in time! In the past year, we did several things that ended up resulting in a tax refund of over $6,000″

• We had our third child.
• We paid a large sum of mortgage interest, and refinanced near the end of the year
• We donated a large amount of items to charity.
• Michelle stopped working after the baby was born (keeping us in a lower tax bracket)
• We did much less “consulting work” than in years past, with which taxes are not typically taken out at the time of payment.

The key this time, was to allocate this money as intellegently as possible to aid in our plan for debt reduction. We can’t afford to make the same mistakes of the past. There will be no home improvements, even though we have things that need improving.  There will be no vacations, even though we desperately need a few days of fun, rest, and relaxation.  There will not even be any splurges of any kind on little gifts for us or the kids.  All of those things can wait until this debt is paid off.  The money needs to be used to strategically try to zero out as many accounts as possible. The goal should be to  lower the amount of monthly interest that just causes the debt to grow and grow, and to zero out accounts so that we no longer have to worry about them and could pool our resources towards the end goal.

So that is exactly what we did.  With the $6000 tax refund, we were able to zero out four seperate accounts.  We were also able to put a huge dent in a fifth high-interest account.

At the same time that we made these payments, we signed up for Discover Card’s current promotion, which is zero percent interest for 12 months, with no balance transfer fee. That is a pretty huge deal, especially the last part. Typically, offers such as these come along with a 3% fee, which can add up to a lot when you are moving $11,000!  We got approved for the card, and I verified before signing the agreement- that even *if* the balance wasn’t paid in full after 12 months, we would not owe back interest on the 12 month time period.

Here is the before and after summary:

The results are pretty dramatic. We have moved from almost $22,000– with much of it on high interest accounts –down to under $15,000, all of it at relatively low-interest.  Before we were being charged almost $300 a month in interest alone on these accounts, and after the changes– this total is under $30.  A dramatic improvement for sure, and I couldn’t be more thrilled.

The game plan from here is to agressively attack Credit Card #1 (still at 12.08% interest) until that debt is eliminated.  I have setup automatic deductions from my paycheck to make a large payment towards this card each month, and any discretionary income that we come across will also get put towards this total.  With some quick and dirty math, I think we should be able to get this total down to zero, sometime in May of this year.

After that, we will start attacking the big dog, which is now being held on the Discover account, at zero percent interest. Since we will have no payments to other credit cards, we should be able to make a fairly substantial payment each month towards this debt.  We will continue to scramble for additional ways to bring in extra money, cut back on our expenses, and apply as much as possible towards this debt each month.

Our goal of completely debt free by the end of the year is truly attainable. I do believe that we can get there.  I am not naive enough to believe that there won’t be unexpected expenses that crop up along the way, but  we are building up an emergency fund as well to handle those situations. We will be documenting every step of our journey along the way. Wish us luck.

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